I defer to Noam on the administration’s motives for announcing this spending freeze and on the real impact of the freeze on spending. But I want to say two things about it. First, if it was done to appease bond traders (where have we have heard that before?), it is ridiculous. Interest rates aren’t exactly soaring these days. It is not 1993.
So it's hard not to like today's unemployment report: the economy only lost 11,000 jobs in November, a number so small the Labor Department considers the employment level "essentially unchanged" from October. That's after shedding an average of 135,000 jobs in each of the previous three months. And even that 135,000 figure looks better than it used to.
While Congress slogs through the final months of the health reform debate, the American people remain focused on the economy. With good reason: We’re in a very deep hole, and it’s not clear how we’re going to get out.
Is it curtains for the strong public option? Over the past week, the White House has taken a lot of heat for not going to bat for it, and Senate Majority Leader Harry Reid has reportedly just decided that the Senate bill will include a watered-down proposal that would allow states to opt out of a national public plan. And, in a speech today, Christina Romer, head of the president’s Council of Economic Advisers, expressed only circumspect support for a strong public option, instead calling the excise tax on high-cost plans the “number one item” that would curb health care costs.
Speaking at the Center for American Progress today, Romer said that President Obama believes the public option is a “potentially important source of cost-containment … especially in rural states,” where insurance markets are heavily concentrated and don’t face much competition. Yet her remarks framed the proposal as a possibility rather than a prerequisite. “Personally, I have been quite persuaded that the public option can be an important source to cost-containment,” Romer said, citing an example from California’s experience contracting with HMOs to provide care for Medicaid patients:
In some counties, we have two private plans, [in] some counties we have one public and one private. … The interesting thing is that cost growth in the counties where there is a public and a private is indeed slower than in counties with two privately run plans.
In other words, the inclusion of a public insurance plan increased competition and drove down costs--exactly what liberal advocates for the strong public option are arguing now in Congress. However, Romer admitted that the California case was “a small sample” and that her support for a strong option remains preliminary. “It’s one of the things that’s given me a sense that it could be something that could ultimately slow the growth rate of costs,” she said.
Christina Romer on the declining impact of the stimulus.
Chart of the Day: State-level ideology splits.
Andrew Leonard: Big banks won't be broken up.
The Department of Labor’s release last week of the worse-than-expected job numbers for the month of September set off the now typical back and forth debate about whether the federal stimulus is working. Joe Biden, Larry Summers, and Christina Romer have commented that the economy is still moving in the right direction and the loss of 263,000 jobs last month could have been worse had there been no federal stimulus at all. Another army of usual suspects claims that the dismal jobs report is proof that the stimulus package has yet to produce economic recovery.
In a way, both camps are right.
Several commentators have noted that temporary stimulus rebate programs--namely “Cash for Clunkers”--propped up the economy through July and August. Car dealers credited this effort for boosting their sales to the highest levels of the year. The First-Time Homebuyer’s Credit is said to be having a similarly positive impact through the real estate and construction sectors. So, in this sense, short-term federal stimulus has been working.
Yet, because these temporary programs are short-lived, so too are the positive economic benefits they generate. The abrupt end of “Cash for Clunkers” led to a rapid reversal of growth in the auto market with the Big Three automakers seeing their sales decline 33 to 37 percent from August levels. And, the looming November 30th expiration of First-time Homebuyer’s Credit has already sparked concern that without this federal support, the housing markets will just reverse on any recent improvements. Sustained economic recovery, it seems, will likely not result from this sort of short-term stimulus.
Give the White House credit. Amid signs that the recession is ending, administration officials are resisting what must be an enormous temptation to gloat. “I think we’re certainly on track to, at least, stabilizing the patient,” said Labor Secretary Hilda Solis during a recent cnbc appearance. But “[t]he patient is still sick.” It’s hardly a triumphalist metaphor.
Exciting news from inside TNR: We just got Gary Gensler, chairman of the CFTC, to join our roster of dignitaries and pacemakers for our event on the current state of the economy. Gensler will tangle with Barney Frank, Eliot Spitzer, Christina Romer, Andrew Cuomo, Bill Ackman, David Wessel, and others on some of the most important questions facing the nation: How have we handled the financial collapse thus far? What could have we done better, and what can we do better still?
